Emma Flood’s latest Business Surgery looks at differing strategies for success and how market research can play a part
I recently read an article on mckinseyquarterly.com which discussed the different strategies of two global companies. One of the companies followed the same investment pattern of allocating capital to each business unit every year, whilst the other evaluated the performance and potential of each business unit, and shared budgets accordingly…
Picture two global companies, each operating a range of different businesses. Company A allocates capital, talent, and research dollars consistently every year, making small changes but always following the same broad investment pattern. Company B continually evaluates the performance of business units, acquires and divests assets, and adjusts resource allocations based on each division’s relative market opportunities. Over time, which company will be worth more?
Although the author is discussing the strategy based on internal factors, the strategies of these two companies immediately took my mind to thinking about b2b market segmentation, and the value this has in both assigning budgets and informing strategy. Segmentation research is all about maximising opportunities, through identifying and evaluating the segments of the market which offer the most potential (and the most profit) to the business. Although the McKinsey article focused on the internal aspects of the business (i.e. the SBUs), there are interesting parallels between the two companies mentioned, and that of our approach to segmentation…
…If you guessed company B, you’re right. In fact, our research suggests that after 15 years, it will be worth an average of 40 percent more than company A. We also found, though, that the vast majority of companies resemble company A. Therein lies a major disconnect between the aspirations of many corporate strategists to boldly jettison unattractive businesses or double down on exciting new opportunities, and the reality of how they invest capital, talent, and other scarce resources.
At B2B International, we consider another key value of segmentation research is to inform or create a strategy which differentiates your business in the eyes of customers; therefore giving your business a competitive advantage. When we think of using segmentation research to differentiate our business, we are striving towards a needs-based segmentation.
A segmentation could be based on firmographics (i.e. company size, geographic location, etc), behaviour (i.e. frequency of purchase, products/services purchased, channel), or the third (and most challenging) option, a needs-based segmentation. The needs-based segmentation understands the precise needs by customer group i.e. the need to choose suppliers that offer quality products, suppliers that are committed to the market, and suppliers that can be trusted, etc. Understanding the needs of the market, and segmenting by these, provides knowledge that only your business has access to and, as such, it is not as easily copied as firmographic- or behaviour-based segmentations. Using a needs-based segmentation can therefore provide a differential, and competitive advantage to your business.
Drawing on the point in the second excerpt above, that the vast majority of companies behave in the way that Company A behaves, it is easy to see why using a strategy based on evaluation, rather than tradition, allows the business to better invest its capital, and reaps the benefits of business growth and profit.